Connecticut plans to sell $500 million of general obligation bonds, starting with a two-day retail period on Monday. The institutional sale is Wednesday.
State officials, citing flexibility, are dividing the sale into $235 million of Series E tax-exempt bonds, $100 million of Series A taxable bonds and $165 million of Series D SIFMA index bonds. The latter are floating-rate bonds with interest rates tied to the Securities Industry and Financial Markets Association index.
Proceeds will benefit statewide capital projects.
The D and A bonds are scheduled to mature in 2023, while maturity for the E bonds is 2033. M.R. Beal & Co. is the lead manager for the D and E bonds while Loop Capital Markets is leading the A sale.
Standard & Poor’s, Fitch Ratings and Kroll Bond Rating Agency rate the bonds AA, while Moody’s Investors Service assigns an Aa3 rating. According to state treasury officials, Connecticut has about $19 billion in debt outstanding, including GO, special tax obligation, clean water, University of Connecticut and Bradley International Airport debt.
Fitch early last month assigned a negative outlook to Connecticut in advance of its $200 million GO sale on July 24. According to Fitch, which called the state’s pension funding levels “a longer-term concern,” Connecticut’s employees’ retirement system was funded at 42.3% on a reported basis as of June 30, 2012, while the teachers’ retirement fund was at 55.2%,
The other rating companies assign stable outlooks.
Kroll cautioned that the state’s reserve, or rainy-day fund, remains minimal at $109.2 million, or less than 1% of annual expenditures. Kroll said restoring that ratio to 10%, the state statutory target, could lead to an upgrade.
The agencies cited Connecticut’s high fixed costs for debt, pensions and other post-employment benefits, or OPEB.
Connecticut also plans a $600 million GO sale in October to enable the state to balance its budget under generally accepted accounting principles. The two-year, $44 billion budget Gov. Dannel Malloy signed in June authorized up to $750 million for such borrowing. Malloy promised conversion to GAAP when he ran for governor in 2010.
“Connecticut’s revenue trends should improve as it emerges from the recession, and the state will maintain its commitment to its [GAAP deficit],” Moody’s wrote.
In addition, the state plans by year’s end to issue $600 million in special tax obligation bonds to fund transportation infrastructure, and $340 million in economic recovery refunding notes.